Dodd-Frank Rollback Bill Likely to Include Proxy Firm Regulation


Capitol DomeHouse Republican lawmakers are signaling that legislation to regulate proxy advisory firms likely will be introduced this year.

Rep. French Hill (R-Ark.) Feb. 28 told Bloomberg BNA that the House Financial Services Committee will take a closer look at the role of proxy advisers in the coming months.

Meanwhile, Rep. Sean Duffy (R-Wis.), speaking at a U.S. Chamber of Commerce event earlier this year, said the latest version of the Financial Choice Act—legislation to roll back the Dodd-Frank Act that is expected in the coming weeks—will include provisions intended to increase oversight and transparency of the proxy advisory industry.

Proxy advisers are paid by pension funds and other large investors to conduct research and help them vote on issues in the thousands of corporate annual meetings that occur annually.

Do they need more regulation? It depends on whom you ask.

Business groups, including the U.S. Chamber of Commerce, have long called for more oversight. They say two firms in particular—Institutional Shareholder Services Inc. and Glass Lewis & Co.—wield an inordinate amount of influence over institutional investor voting. They also say there is a lack of accountability for inaccurate information and inadequate disclosure of conflicts of interest.

ISS and Glass Lewis representatives, on the other hand, say their firms provide a valuable service by doing the research so that their clients can focus on decision-making. They also previously said that alleged factual errors may be more a matter of interpreting what constitutes “long term,” “performance-based” and other issues than real mistakes.

In any case, the legislation, when introduced, is likely to require the firms to register with the SEC. To be eligible for registration, the firms would have to disclose the procedures and methodologies they use to develop voting recommendations, and any potential or actual conflicts arising from their provision of advisory services. Those measures were included in a bill (H.R. 5311) Duffy introduced in May 2016, which was folded into the previous version of the Choice Act.